UOB Kay Hian
Report Date: Friday, 22 August 2025

EVE Energy Reports 2Q25 Earnings Miss: Margin Pressures Prompt Downgrade to Hold

Executive Summary

EVE Energy, a leading developer and manufacturer of lithium-ion batteries for consumer and industrial applications, reported disappointing second-quarter 2025 results, triggering a downgrade to HOLD by UOB Kay Hian. The company’s net profit for the quarter dropped sharply due to margin compression and exceptional expenses, despite robust topline growth. Management remains optimistic on margin recovery, underpinned by strategic customer and product mix optimization, but near-term profit visibility remains clouded by operational and financial headwinds.

Company Overview

• Name: EVE Energy Co., Ltd.
• Industry: Materials (Lithium-ion batteries for consumer electronics, power tools, EVs, and energy storage)
• Share Price: RMB 48.07
• Target Price: RMB 50.00 (Upside: 4.0%)
• Market Cap: RMB 98,195m (USD 12,670m)
• Major Shareholder: Tibet EVE Holdings Co., Ltd. (32.63%)

2Q25 Financial Performance: Sharp Profit Decline Despite Revenue Growth

EVE Energy’s second quarter 2025 results fell well short of market expectations:

Key Drivers and Headwinds in 2Q25

• Profit Hit by One-Offs: Adjusted net profit was dragged down by a share-based compensation expense of RMB 570m and a bad debt provision of RMB 150m, related to the bankruptcy of customer Hezhong (Neta’s parent).
• Strong Revenue Growth: Revenue increased 24.6% year-on-year, supported by significant growth in both power and energy storage battery shipments.
• Margin Dynamics: While gross margin improved to 17.5%, EBIT margin contracted sharply to 5.5% due to higher selling, general & administrative (SG&A) costs, which rose to 7.9% of revenue in 2Q25.
• Operational Cash Flow: Operating cash flow fell 28.2% year-on-year but rebounded 65.9% sequentially. Free cash flow remained negative at RMB -934m.

Shipment Volumes: Continued Expansion

• Power Battery Shipments: 21.48 GWh in 1H25, up 58.6% year-on-year.
• Energy Storage Battery Shipments: 28.71 GWh in 1H25, up 37.0% year-on-year.

2025–2027 Outlook: Guidance, Forecasts, and Margin Recovery Efforts

Management Guidance and Strategic Adjustments

• Power Battery Shipments: Full-year guidance maintained at 50 GWh for 2025, with forecasts for subsequent years at 65 GWh (2026) and 80 GWh (2027).
• Energy Storage Shipments: Cut to 80 GWh (2025), 120 GWh (2026), and 150 GWh (2027) from previous estimates of 90/130/170 GWh, reflecting a more cautious outlook and a shift towards higher-margin products.
• Gross Margin Assumptions: Upgraded to 17.3% in 2025 and 2026 and 17.2% in 2027, based on strong 2Q25 performance and management’s focus on margin improvement via customer and product mix optimization.
• Net Profit Margin Target: Management aims for a full-year net profit margin above 5%.

Earnings Revisions and Valuation

• Net Profit Forecasts: 2025–2027 net profit forecasts have been cut by 27%/26%/8% to RMB 3.84b/5.14b/8.01b.
• Valuation: Target price held at RMB 50.00, based on a 10-year DCF model (WACC: 11%, terminal growth: 4%), implying a 2025 PE of 20x (in line with the historical mean one-year forward PE).
• Recommendation: Downgrade to HOLD due to near-term margin and earnings pressures, despite longer-term structural positives.

Detailed Financials: Profitability, Balance Sheet, and Cash Flow

Key Metrics and Trends

• EBITDA Margin: Expected to decline from 15.7% (2024) to 12.8% (2025F), then recover to 13.0% by 2027F.
• Pretax Margin: Projected to dip from 9.5% (2024) to 7.7% (2025F/2026F), before rising to 9.9% (2027F).
• Net Margin: Forecasted to decrease from 6.5% (2024) to 4.4% (2025F), before improving to 6.1% (2027F).
• Revenue Growth: Expected to accelerate from -0.3% (2024) to 24.4% (2025F) and 34.1% (2026F).
• Leverage: Net debt to equity remains elevated but is projected to decrease from 43.8% (2024) to 36.0% (2027F).

Stock Performance and Market Sentiment

• Share Price: Currently trading at RMB 48.07, with a 52-week high of RMB 58.54 and low of RMB 30.73.
• Valuation: The stock trades on a 2025F PE of 25.6x, compressing to 12.3x by 2027F, as earnings are forecasted to rebound.
• Consensus Comparison: UOB Kay Hian’s 2025–2026 profit forecasts are 27% below consensus, reflecting a more conservative outlook.

Strategic Outlook: Opportunities and Risks

• Growth Drivers: Sustained expansion in power and energy storage battery shipments, stable international OEM demand, and new production lines coming online.
• Margin Levers: Customer structure optimization, product mix upgrades towards higher-margin models, focus on operational efficiency.
• Risks: Further exceptional costs, high SG&A spending, bad debt risk, and competitive pressures.

Conclusion: Near-Term Caution, Long-Term Potential

EVE Energy’s robust sales growth and positive margin initiatives are overshadowed in the near term by sharp earnings declines and exceptional expenses. The company’s efforts to optimize its portfolio and cost base are expected to deliver margin improvement and profit recovery over the next two years, but investors should be mindful of ongoing execution and macro risks. UOB Kay Hian downgrades EVE Energy to HOLD with a maintained target price of RMB 50.00, reflecting a balanced risk-reward profile amid sector volatility.